Background
Chelsea Lees worked for SXNM Successionmatching Ltd., a start-up that matched buyers and sellers of small- and medium-sized businesses. Initially hired as an employee in 2019, she later asked to become an independent contractor so she could pursue other work. Contractor agreements, GST invoices, tax treatment and the absence of payroll deductions all characterized the relationship that way.
Lees testified, however, that little changed after the new classification. Her duties expanded according to the company’s needs; its CEO assigned and reviewed her work, controlled meeting times and required approval for vacations and additional yoga classes. Lees used some personal equipment but relied largely on company-provided software, could not delegate her work, and was prohibited from working directly for the company’s clients. The Minister ruled that she was an independent contractor from January 1, 2023, through October 15, 2024, making her employment neither insurable under the Employment Insurance Act nor pensionable under the Canada Pension Plan.
The Court’s Holding
The Tax Court allowed both appeals and held that Lees was an employee during the disputed period. Applying the two-stage approach from the governing employee-versus-contractor authorities, the Court found that the parties had labelled and taxed the arrangement as independent contracting, but had little common intention that it operate as such in substance. The agreements omitted important features of the relationship and frequently did not reflect the work Lees actually performed.
The objective factors established an employment relationship. The company exercised substantial control over Lees’s tasks and schedule; she had no material opportunity for profit or risk of loss; she could not delegate or subcontract; and her broad, long-term communications and product-design role formed part of the company’s business rather than a business conducted on her own account. The Court referred the assessments back for reconsideration and reassessment on the basis that her work was insurable and pensionable employment, without costs.
Key Takeaways
- Calling a worker an independent contractor does not determine legal status when the practical relationship is one of employment.
- Contractual labels, GST invoicing and business-income reporting remain relevant evidence of intent, but cannot override the objective reality of the relationship.
- Extensive control, fixed compensation, no meaningful profit opportunity or loss exposure, no delegation right and integration into the payer’s business supported employee status.
Why It Matters
The decision underscores that Canadian businesses cannot rely solely on contractor agreements or tax formalities to avoid Employment Insurance and Canada Pension Plan obligations. Courts will examine how the work was actually assigned, supervised and performed.
For workers and organizations, the case also shows that a relationship may be reclassified even when both sides originally adopted contractor terminology. Agreements should accurately reflect operational reality, and businesses should reassess status when a contractor’s role becomes controlled, continuing and integral to the enterprise.